Thermal coal prices seen predicted to decline next year: Report
Tuesday, September 20 2005 - 12:23 AM WIB
Prices for thermal coal, the second- biggest energy source used in power plants after oil, will decline next year from a record high as producers such as BHP Billiton, Anglo American and Xstrata expand production.
Supply contracts will average US$49.50 a tonne next year, according to the median forecast of six analysts in a survey, compared with a record US$53 a tonne in 2005. Coal output will grow 2.3 percent to 4.7 billion tonnes, JPMorgan Chase estimated in a September 7 report from London.
BHP, Anglo and Xstrata, whose executives were at a two-day coal conference in France Monday, are digging new mines and upgrading ports and railroads to increase coal supplies. Spot prices for the fuel, which provides almost a quarter of the world's electricity, have dropped 3 percent this year.
Australia and Indonesia, the world's two biggest coal exporters, are among nations that will expand their production next year, JPMorgan said.
Jeffrey Mulyono, chairman of the Indonesian Coal Mining Association, said Monday that the country's coal exports would jump by 19 percent to 110 million tonnes, due to strong global energy demand and bottlenecks in Australia's coal export infrastructure.
He said last month that Indonesian coal-mining companies plan to boost output by 9.7 percent next year to 170 million tonnes.
Xstrata, the world's largest exporter of thermal coal, is developing new mines such as the A$521 million (HK$3.1 billion) Rolleston open-pit mine in Queensland, Australia, which is scheduled to start production in the fourth quarter. The mine will produce eight million tonnes a year, the Zug, Switzerland-based company said on August 10.
Cerrejon Coal of Colombia, the world's largest open-pit mine producing coal for export, is expanding production 45 percent to 32 million tonnes a year. Cerrejon is owned jointly by Anglo American, BHP and Swiss trader Glencore International.
London-based Anglo American, the world's No2 miner, opened its five million tonne Isibonelo mine in South Africa in July.
Coal delivered within three months from Richards Bay, South Africa's largest coal export port, fell 19 cents, or 0.4 percent, to US$46.88 a tonne for the week ended September 9, according to the RB Index from globalCOAL, an electronic-trading platform. That's 3 percent lower since the end of 2004.
Port capacity is rising in Australia and South Africa. Australian port and rail authorities such as Babcock & Brown Infrastructure may spend a total of A$4.8 billion to increase coal export capacity by 150 million tonnes by 2010, Xstrata said last week.
"We expect demand to increase between now and 2007, and we expect supply to increase, but supply would be restricted" by limited port capacity, Peter Coates, head of Xstrata's coal division, said at an industry conference in Brisbane, Australia last week.
Goedgevondnen mine in South Africa is awaiting increased rail capacity.
BHP, the world's largest mining company, said in July that production rose 4 percent to 87.4 million tonnes for the year to the end of June as the company started operations at its Mount Arthur mine in Australia.
Global thermal coal supplies may still fall short of demand by 14.3 million tonnes for this year and next, Citigroup analyst Alan Heap said
Chinese net coal exports may drop at least 15 percent this year to 58 million tonnes, the second consecutive annual decline, as producers struggle to raise output, according to Merrill Lynch.
China uses about 1.6 billion tonnes of coal a year, almost equal to combined usage in the United States and Europe.
"I wouldn't read too much into spot prices," Grant Thorne, managing director of Rio Tinto Coal Australia, said. "It is a quiet time now and utilities will have stockpiles. Demand has continued to be strong, though the northern summer was milder than expected."
"The only other energy source that can displace coal is nuclear, and significant new capacity is a long way off," said JPMorgan analyst Anindya Mohinta in London.(*)